Venture Corporation - CIMB Research 2016-04-29: 1Q16 ~ Off to a good start

Venture Corporation - CIMB Research 2016-04-29: 1Q16 ~ Off to a good start VENTURE CORPORATION LIMITED V03.SI 

Venture Corporation - 1Q16: Off to a good start 

  • 1Q16 results in line; revenue growth aided by new products. 
  • Test & Measurements/Others segment now accounts for 39% of sales (1Q15:32%) as new products have been classified into this segment. 
  • Working capital improvement finally came through. Free cash flow of S$93m in 1Q16 (S$37m in 1Q15). 
  • 1Q16 aided by 39% yoy decline in prototyping related and tooling costs. Still, core net profit would have grown 7% yoy (despite higher tax) if such costs were flat yoy. 
  • Target price maintained at S$9.52, still based on 14x (6-year historical average) CY17F EPS.

Commendable quarter

  • 1Q16 sales and core earnings were in line with our and consensus expectations at 23% of full-year sales and 22% of full-year net profit forecasts. 
  • Results were commendable in the face of a higher tax rate of 15.6% in 1Q16 versus 14.9% in 1Q15, and a prudent full write-off of doubtful debts of S$1.7m. 
  • Adjusting for foreign exchange impact and assuming a flat R&D expenses instead of the reported 39% yoy decline, net profit would have still grown by a commendable 7% yoy.

2 key takeaways from 1Q16 results

  1. Venture made further traction in new products (example, water filtration-related field) which have been classified into the Test & Measurement/Others segment, resulting in this segment accounting for 39% of sales in 1Q16 versus just 32% in 1Q15. 
  2. Working capital management has improved, with working capital at S$700m in 1Q16, versus S$762m in 1Q15 and S$774m in 4Q15. The company did not factor any receivables but made progress in receivables collection and possibly reduced its supplier list.

Outlook statement sounds more positive

  • Venture believes that good strides made in its R&D initiatives, innovation in product and solution development, and sustained operational excellence, along with its healthy balance sheet and competent cash generation ensures that the group is well positioned to seize emerging opportunities and to build sustainable and profitable growth.

Maintain Add

  • We maintain Add on Venture, with a target price of S$9.52 which is based on an unchanged 14x (6-year historical average) CY17 EPS forecast. 
  • Note that Venture trades ex-dividend on 5 May.

William TNG CFA CIMB Securities | http://research.itradecimb.com/ 2016-04-29
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 9.52 Same 9.52